In investment - a glimmer of hope for the North Caucasus?

Old buildings in the Chechen city of Grozny have been replaced by glitzy shops and business centers. Source: Reuters

After three years of intense federal investment into the volatile North Caucasus region, two sectors see results – food and tourism. But experts warn that ski lifts and irrigation systems alone will not keep violence at bay.

A brand new, French-built cable car taking international tourists to the
world’s highest-altitude hotel on the ledge of Europe’s tallest
mountain, with a serene, yet snowy mountainous backdrop, is not what
most people picture when they think of Russia’s Caucasus Mountains, more
famous for terrorist bombs and ethnic strife.

Yet this was exactly the
image the North Caucasus Development Corporation (NCDC) was trying to
project to a small group of journalists attending the unveiling of the
LeapRus hotel at an altitude of 3,912 meters on Mt. Elbrus.

Following two brutal wars fought in Chechnya in the 1990s, sectarian
violence and an ongoing insurgency spilled over into neighboring regions
over the next decade. In 2010, then-President Dmitry Medvedev announced
a broad initiative to channel federal funding into mostly tourist
projects across the entire scenic North Caucasus Mountains.

Photographs by Artem Zagorodnov

Funds to the
tune of $15 billion were earmarked for eight key clusters located in
regions like Dagestan and Ingushetia in hopes of creating jobs.

“We’re currently overseeing seven projects in manufacturing, tourism
and agriculture, with a total investment of over $200 million. As they
near completion, over 5,000 jobs will be directly created, with another
10,000–12,000 in related industries and small and medium businesses,”
explained Anton Pak, the NCDC head, when questioned about what had been
accomplished over the last three years.

Food for Thought

For a region with a working population of more than four million, this
is just one first step toward fighting rampant unemployment. But the
NCDC is one of several organizations tasked with channeling investments
here.

“Our big break was getting Hong Kong's ADM Capital fund to commit
$30 million to the IrriCo agricultural project in the Stavropol Region,”
said program director and former Renaissance Capital investment
banker Vitaly Buzu in the conference room of the region's Mineralniye
Vody airport. “This commitment has already attracted interest from other
Asian and American investors.”

The joint project with VTB Capital, Russia's second-largest investment
bank, will continue to invest $250 million into about 99 thousand acres
(40 thousand hectares) of land, modern machinery, irrigation systems and
storage facilities over the next three years located within 250 miles
(400 kilometers) of Russia's Black Sea ports, its primary routes for
exporting grain. (Russia is currently the world's second largest grain
exporter after the United States.)

“[We are] very confident in our ability to continue to grow IrriCo into
a significant player in this sector,” Anthony Stalker, ADM's European
head, told Agrimoney.com.

“Russia is number three in the world in terms of total amount of arable
land – after the U.S. and India – but it is vastly underused. Europe
harvests an average of five tons per hectare of produce while the figure
for Russia is 2.4 tons. We're even 20 years behind countries like
Brazil,” said Buzu. “The price for land here is cheap compared to other
countries and this region is ideal for producing soybeans, corn and
potatoes.”

A History of Violence

“It's enough for a glass to fall off a table and break for the media to
write about another terrorist attack in the North Caucasus,” Andrei
Kataev said over dinner in the nearby town of Essentuki.

To prove his
point that the area is ready for tourists, he took reporters up 3912
meters for the unveiling of the world's highest-altitude hotel in the
neighboring republic of Kabardino-Balkaria.

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The burly, 30-something
Kataev had made a career bringing tourists to Siberia before becoming
the Corporation's point man for developing the hospitality industry.

Kabardino-Balkaria has drawn international headlines – but not the kind
they were looking for. Four tourists to Mt. Elbrus were murdered in
early 2011. Many journalists continue to monitor the violence
—especially when authorities launched a counter-terrorism operation in
Kabardino-Balkaria.

“We still haven't recovered from that,” lamented Kataev. “After those
murders the number of annual tourists to Mt. Elbrus halved to five
thousand; we're only now up to eight thousand.”

Tengiz Mokaev, a native of Kabardino-Balkaria, founded the North
Caucasus Mountain Club. The company promotes adventure and eco-tourism
throughout the entire North Caucasus, with a focus on Stavropol and
Kabardino-Balkaria.

“This cluster of six spa towns [Essentuki,
Lermontov, Kislodovsk, Mineralniye Vody, Pyatigorsk, Zheleznovodks] has
no analogues in Europe offering such a diversity of mineral water and
therapeutic services,” Mokaev said on an off-road tour in the hills
overlooking Kislovodsk. “If you're talking about annual tourists to
these resorts, it already is around a million. The potential is great.”

Into Thin Air

On the morning of the unveiling of the LeapRus hotel, a group of
reporters spent six hours traveling by bus, cable car, ski lift, foot
and, finally, snow caterpillar to reach the resort, which consists of
three cylindrical structures designed to house up to 36 guests in bunks
and offer amenities like a warm shower, bathroom, wifi, kitchen, dining
hall and reception desk.

The hotel is designed as a stopover for
climbers aiming for the summit of Europe’s tallest mountain.

The solar-powered facility was constructed using the latest Italian
technologies in green hospitality. “The investors were enthusiastic
about building something that produces virtually no waste or harm to the
surrounding environment so high up,” gleamed Kataev.

Altitude sickness nonetheless hit some reporters, which made for a long
trip down. Elbrus peaked another 1600 meters above, while the clear
weather allowed visitors that day to view the neighboring country of
Georgia.

A Drop in the Bucket

This breathtaking area of mountains emerging from mist was immortalized
in Mikhail Lermontov's portrayal of the Russian Empire's 19th century
conquest of the Caucasus. Mt. Elbrus was also the scene of the
highest-altitude land battles between German and Soviet soldiers during
World War II.

The upcoming 2014 Winter Games in nearby Sochi have acted as a catalyst
for federal efforts to stabilize the region before the world's
attention is focused here next February.

Following the recent suicide bombing in Volgograd, some experts have
warned that Southern Russia is ripe for terrorist attacks ahead of the
Games. Overall data for the North Caucasus Federal District are somewhat
encouraging however. Reports by the Caucasian Knot information agency
show a drop in violence in all but one of the regions.

The number of
civilian casualties from terrorism decreased to 87 in 2012 from 176 the
year before. Statistics for this year so far show a similarly positive
trend.

“If there are some positive trends they could be explained by that fact
that the federal authorities are not the only ones preparing for the
Olympics,” said Alexei Arbatov of the Moscow Carnegie Center.

Violence isn’t the only problem sabotaging efforts to stabilize the
area. Corruption allegations against the government's largest
organization for investing in the region, the North Caucasus Resorts
company, led to raids of the company's offices as well as criminal
charges against former CEO Akhmed Bilalov and General Director Alexander
Nevsky earlier this year. Following major delays, to date not one of
the company's eight planned major resorts has so far welcomed any
tourists.

“The government needs to show that something is being done ahead of the
Olympics. The message they are increasingly pushing is ‘don’t be afraid
of the Caucasus.’ It’s better that they created these development
organizations than if they had done nothing at all, but it’s important
they begin to work as intended. The biggest difficulty is that problems
that still exist in Moscow – like a lack of rule of law and corruption –
are only amplified in the North Caucasus,” explained Arbatov.

Kataev countered: “We have to use next year’s Olympics as a catalyst
for bringing people here to see the region's beauty and potential.”

The author accepted an invitation by the North Caucasus Development
Corporation to attend a press tour visiting the sites described in the
story.